24 Jun 2016

What Hath the United Kingdom Wrought?


“Every time we have to decide between Europe and the open sea, it is always the open sea we shall choose”. That famous Winston Churchill remark to Charles deGaulle resonates gloomily today.

In the worse outcome for the Brexit referendum, the UK electorate tossed away half a century of foreign policy and took a plunge into the unknown. A relatively small number of largely older, uneducated voters decided that the younger generations of Britons who voted to remain should instead face the growing global competition on their own rather than as an integral part of the most powerful economy and trading block in the world.

Financial markets had been complacent and were caught off guard by an early morning earthquake that affected most traded asset classes around the globe. Prime Minister David Cameron announced his resignation, ushering in a political and constitutional crisis. And Scotland and Northern Ireland voted overwhelmingly to stay in the EU, opening the door to the idea of further referenda and a potential future break-up of the United Kingdom.

We are now likely to face several years of painful negotiations as the UK tries to extricate itself from the myriad ties that link it to the other 27 countries and that have played a role in every area of the country’s life. As historian Niall Ferguson has pointed out, this will be like a divorce after a long life in common.

Europe must decide how messy it wants the divorce to be. It will be up to the EU to decide the terms and conditions of this non-consensual separation, and even more complex and important, what status it will allow Britain to have going forward. It will have to tow a fine line between being too harsh -- to defuse contagion in other EU countries where the centrifugal forces are strong -- or being too accommodating in finding a compromise that does not look like punishment but may encourage others to seek their own deal.

This is a big wake-up call for Europe. It is clear that it must reboot. There are many places to find closer integration, including a closer defense coordination or some form of commonTreasury and fiscal harmonization. Europe must ensure that its efforts have the support of public opinion and are not seen, as too often in the past, as the product of political and technocratic elites. Not an easy task without more solid economic growth.

Next March, European leaders will mark the sixtieth anniversary of the signing of the Treaty of Rome, the EU’s instituting document. It will be an uneasy celebration. It could be downright disconcerting if, by then, the kind of populism that created this result in the UK will have brought about other perilous electoral outcomes on the other side of the Atlantic.

Former investment banker Dante Roscini is Professor of Management Practice at Harvard Business School.

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